The rents of Grade-A Offices will decline as the occupiers take a cautious approach

URA headline rental index for office properties recorded a rapid 4.9% quarterly increase in 3Q2023, almost double the 2.3% quarterly growth of the previous quarter.

URA’s real estate statistics, however, showed that median rental rates for Category 1 Office Space, which URA defines in its data as buildings in Core Business District, Downtown Core and Orchard Planning Area, fell for the second time in five quarters. They were 2.3% lower compared to last quarter.

Median rents dropped for the first quarter in eight for all office space outside of Category 1 (which URA defines). They fell 4.5% on a quarterly basis.

JLL reported that CBD Grade -A office rentals declined in the third quarter of 2023, ending nine consecutive quarterly increases. JLL reports that average gross monthly rents in CBD Grade-A space fell by 0.3% in 3Q2023, compared to the previous quarter.

In 3Q2023, occupancy increased from 89.2%, which was the rate in 2Q2023, to 90.2%, due to a tighter marketplace resulting from stock removals.

URA statistics show that 0.45 Million sq ft were removed from stock during the third quarter of 2023. This was due to the redevelopments in Central Square, Faber House, and Central Mall.

A longer-term interest-rate regime is expected, as are global economic uncertainties.

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JLL says that in 2024, office completions on the entire island are expected to reach their highest level for seven years. Around 1.9 million sq ft Grade-A of office space in the CBD is expected to be completed, primarily from two projects – the IOI Central Boulevard Towers 1.3 million sq ft ) and Keppel South Central 0.6 million sq ft.

JLL estimates close to 1,1 million sq ft of space remained unsold as of third quarter 2023.

In the Central Region only 57 office Strata Transactions were completed in the 3Q2023. This was the lowest amount since the 3Q2020 with only 47 transactions.

CBRE Research estimates that rents for Grade-A offices will increase between 1.5% – 2% in the Core CBD over the next year. Although slower than in 2022, this is still faster than the projected growth of GDP.

Wong Xian Yang (Cushman & Wakefield Singapore and Southeast Asia head of research) says the Downtown Core is where the bulk of 3Q2023’s net demand came from. Net office demand reached 398,264 sq ft.
It was also the strongest growth in net office demand qoq since Q1 2020, according to Wong Xian Yang.

Wong reported that financial and professionals services continued to be the primary demand drivers for CBD office space, accounting for 58% in the first three months of 2023. That’s up from 26% over the entire year of 2022.

Tricia Songs, CBRE’s Singapore and Southeast Asia Head of Research, says that diversified demand drivers made up the shortfall caused by a slowdown in the technology sectors.

Sectors such as private wealth management, asset and consumer goods were the most active in 3Q2023.

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